The Inherent Immorality of Fiat Currencies

09Jan

[courtesy Google Images]

Global Research published an article entitled “Why Quantitative Easing (QE) May Lead to Deflation”. That article argued that, although “Quantitative easing (QE) was supposed to stimulate the economy and pull us out of deflation . . . . QE3 [the third round of QE] failed to raise inflation expectations in the US.

• “QE hasn’t worked in Japan, either.”

The Wall Street Journal noted in 2010, “Nearly a decade after Japan’s central bank first experimented with the policy, the country remains mired in deflation, a general decline in wages and prices that has crippled its economy.”

In fact, “The Bank of Japan (BOJ) began doing quantitative easing [printing fiat currency] in 2001. It had become clear that pushing interest rates down near zero for an extended period had failed to get the economy moving. After five years of gradually expanding its bond purchases, the bank dropped the effort in 2006.”

• Coincidentally, the Federal Reserve is also currently holding US interest rates close to zero in order to “get the economy moving”. And, after five years of expanding bond purchases here in the US, the Federal Reserve tapered those purchases until they ended around October of A.D. 2014. While QE may have prevented the US economy from collapsing, it has been largely unsuccessful at providing enough “stimulus” to cause the economy to do much more than stagnate.

• The Global Research article argued that QE has been tried and failed in Japan, the US, China, and even the UK, but, “despite massive QE by the U.S., Japan and China, there is now a worldwide risk of deflation.”

• The Telegraph asked, “Why the world economy cannot seem to shake off this ‘lowflation’ malaise, even after QE on unprecedented scale by the US, Britain, Japan and in its own way Switzerland.”

• The observations provided by Global Research and the question provided by The Telegraph’s both presume that inflation is good (and should be prevalent) and deflation is bad—and should be avoided. In fact, inflation and deflation are, at best, both only “good” for some people, but also bad for others. Because of the inherent harm posed by both monetary conditions, both inflation and deflation are morally “bad”.

I.e., inflation seems “good” for borrowers because it allows them to repay their debts with “cheaper dollars” that have less purchasing power.

For example, for most of my lifetime, anyone who’s ever taken out a mortgage has been encouraged to do so by the assurance that, thanks to inflation, he’d be able to repay his debt with “cheaper dollars”. If he borrowed $250,000 to purchase a new home, thanks to 20 years of inflation, he’d repay the nominal sum of $250,000. But in terms or purchasing power, he might actually repay the lender only $200,000, even $150,000, or even less as compared to the purchasing power of the $250,000 he originally borrowed.

Thus, in this hypothetical example, inflation might’ve subsidized the borrower with the equivalent of, say, a $100,000 “gift” over the 20 or 30 years of the mortgage loan. It’s therefore argued that inflation is “good” because it “stimulates” people to borrow and spend and thereby “stimulates” the economy.

But, while inflation may seem to be “good” for debtors, it’s terrible for creditors (those who’ve produced and saved wealth and have currency to lend) because, by means of inflation, creditors are robbed of some or much of the value (the purchasing power) of their loans.

I.e., in the previous hypothetical example, a creditor loaned $250,000 in purchasing power to help the borrower purchase a new house. However, thanks to inflation, the creditor might only have been repaid $150,000 in purchasing power. Thus, inflation might’ve caused the creditor to suffer a $100,000 loss of capital. Yes, the creditor may still get his “$250,000” back, but it’s only worth $150,000 in purchasing power as compared to its worth when the loan originated. The creditor has been robbed by inflation.

• Conversely, if we enter into a period of deflation, again, it may appear to be good for some but bad for others.

During deflation, the purchasing power fiat currency increases. The market price of the home a borrower purchased with a $250,000 mortgage, might fall to $150,000. That fall in price doesn’t merely mean that price of the house has fallen, it means that the purchasing power of the dollar as increased.

During an hypothetical period of deflation, what could’ve been purchased for $250,000 ten years ago, might be purchased today for just $150,000. In this example, the dollar would’ve gained almost 66% more purchasing power than it had when the original $250,000 was borrowed. That means that the borrower who repays the nominal $250,000 may actually be repaying as much as $415,000 (in terms of the purchasing power).

In this hypothetical example, thanks to deflation, the debtor/consumer/borrower might be robbed of the “extra” $165,000 in purchasing power while the creditor/producer/lender seems to be unjustly enriched to the tune of $165,000 in purchasing power. Assuming the loan is repaid, the borrower is robbed and the creditor is subsidized and enriched by deflation.

But there’s the rub: The creditor is only subsidized by deflation if the loan is repaid.

If deflation persists for a year or more, the increasing value (purchasing power) of the fiat dollar adds to the value of the outstanding loans yet to be repaid at a time when work is scarce and both wages and profits are falling. Unlike inflation (where the fiat currency loses value, becomes “cheaper” and thereby makes loans easier to repay), deflation (where the fiat currency gains value, become “more expensive” and thereby makes loans harder to repay) causes existing borrowers to default on their loans.

Result?

The man that borrowed $250,000 that (thanks to deflation) has appreciated in value to, say, $465,000 in purchasing power—will be unable to repay his loan, or may simply refuse to repay their loans. We saw something like this after the Great Recession of A.D. 2008 when home prices fell so dramatically that borrowers (who were still owed on their homes but were “underwater” in terms of loan value) simply abandoned their homes and refused to repay the loans they’d taken out from the banks.

When the borrower can’t or won’t repay his debts, creditors get robbed.

Deflation tends to precipitate bankruptcies among borrowers who are expected to repay loans with “more expensive” dollars. Bankruptcies cause borrowers to default on their loans. When borrowers default on their loans, creditors take a loss.

• Thus, both inflation and deflation tend to rob creditors. Inflation robs creditors by repaying their loans with “cheaper dollars”. Deflation robs creditors by precipitating bankruptcies which cause borrowers to default on their loan payments—which, again, robs creditors of their capital.

Inflation may be preferable to deflation since inflation at least enriches borrowers, but deflation robs both borrowers of their properties (homes being foreclosed) and creditors of their capital due to default on debts.

Either way—inflation or deflation—requires that someone be robbed. That someone is always the creditors and sometimes the borrowers.

• “Creditors” are, or represent, those members of society that are: 1) productive; and 2) determined to live within their means and therefore able to save some of their wealth that might then be loaned to others. Producers/creditors are the “geese” that lay the “golden eggs” (capital). Capital is indispensable for sustaining an economy.

If your economy has 1,000 consumers/borrowers for every one producer/creditor, the consumer-majority would seem to hold all of the political power. But, if your society loses your minority of producers/creditors, there’ll be no wealth for the consumer/borrowers to borrow and nothing for them to eat. Chaos will reign.

Given that both inflation and deflation both rob creditors and deplete our nation’s capital, both inflation and deflation are immoral.

More, fiat currencies are dangerous to, and ruinous of, national economies because, both monetary phenomena ultimately rob producers/creditors to the point that a national economy is looted, loses much or most of its capital and ultimately collapses for lack of money and sufficient credit.

In either case, fiat currency robs creditors.

That is, during periods of inflation, fiat currency robs those who are productive and able to save their wealth by allowing debtors to repay their debts with cheaper dollars. Inflation robs producers/creditors of much of the wealth they are currently producing and saving.

Deflation causes bankruptcies that prevent borrowers from repaying their debts and thereby, again robs producers/creditors of much of the wealth that they’d previously produced, saved and loaned out.

• Both inflation and deflation are consequences of using a pure, fiat currency whose value/purchasing-power can be manipulated (artificially changed) by governments or central banks.

Monetary inflation and deflation are attributes of pure fiat currencies.

Given that both inflation and deflation are immoral (either way, creditors must be robbed and capital (saved wealth) must be destroyed), it’s arguable that every fiat currency is inherently immoral.

• On the other hand, if any “money” is inherent moral, it would have to be one that holds its value steadily over years, decades and even centuries.

There is no single “currency” that holds its value precisely over time. I doubt that there’s any single “currency” or “money” that can’t be exploited. But there is one “money” that does hold its value fairly steadily over time. There’s one “money” that’s least susceptible to the immorality of inflation and deflation: gold.

Gold is, and should be, money simply because gold is inherently moral (or at least far more moral than fiat currency). If you borrow one ounce of gold or 1,000 ounces of physical gold, then you have to repay that one or 1,000 ounces.

Gold doesn’t inflate and therefore won’t “stimulate” the economy, but gold also doesn’t deflate and collapse the economy.

When you do repay a loan of physical gold with an exactly equivalent mass of physical gold, odds are, no one gets robbed. There is no theft inherent in gold (or silver) coin.

• In the end, all fiat currencies collapse. I doubt that those monetary collapses are due to simple mathematics. I’d bet that the inevitable collapse of all fiat currencies is based on the fact that they are all inherently immoral and prone to robbing creditors and destroying capital.

These adverse consequences won’t take place overnight. They’ll happen slowly, almost imperceptibly, over a period of decades or generations. But, once your nation accepts a fiat currency, it’s doomed to collapse and ruin.

15 responses to “The Inherent Immorality of Fiat Currencies”

While a currency backed by commodities is a good thing, gold can’t by itself be that commodity. The reason being there isn’t enough of it.

Taking the U.S. economy as an example, the money supply has been twice the GDP since the 1950s. If this ratio of money supply to GDP decreases too much, the economy grinds to a halt.

The U.S. money supply now equals $28 trillion, which equates to more than triple the entire world’s gold supply. So there clearly isn’t enough gold for a one-to-one ratio of dollars to gold.

Of course, the U.S. could simply declare ITS gold to be worth $20,000 an ounce, and then there would be enough gold, but such a gold-backing “by declaration” would result in just another FIAT currency. lol

Adask said: “Gold doesn’t inflate…”

Wat? Of course gold inflates. All commodities inflate through the issuance of paper instruments, as we presently see in many commodities including gold.

Gold, as useful as it is for certain purposes, simply doesn’t exist in sufficient quantity to back the US dollar.

And yes, it’s the ratio of money supply to GDP that counts. The price of gold in dollars is irrelevant in this context.

For example, if inflation took the price of gold to $1,000,000 an ounce, there would occur a roughly similar nominal increase in the GDP at the same time, so there still would not be enough gold to back the dollar.

What matters is that, to sustain the economy, the nation’s money supply must be worth twice its GDP. But all the gold in the world is worth only two-thirds the GDP of the United States.

Thus, facts and logic tell us that a gold backed US dollar is impossible in this and any likely real world. No amount of “what if” wishing and hoping can make it otherwise.

I only read the first paragraph about the inflation side of barrowing $250,000. and the writter says the lender has lost purchasing power when the amount is paid back. However, ther isn’t any mention of the % of intrest which goes with the loan which if ran out to the full term of the load the borrower can pay back as much as twice the amount.

The same principles apply to the interest on the loan as apply to the principal of the loan. Inflation will allow borrowers to repay a lower rate of inflation (as measured in purchasing power) than was originally agreed. The creditor will be robbed.

During a period of deflation, the real rate of interest (as measured in purchasing power) will be more than originally agreed. The borrower will be robbed–unless the borrower defaults on his loan and then the creditor will (again) be robbed.

I only wrote about the principal in order to simplify my argument and presentation. But if you want to include the interest, that’s fine with me.

Let’s suppose that, including interest, the total price of the home is not $250,000 (principal) but $500,000 (principal + interest). On a percentage basis, inflation will diminish the purchasing power of the $500,000 (principal + interest) just as much as it would on a percentage basis applied only to the principal. On a percentage basis, deflation would likewise increase the total cost (purchasing power) of the $500,000 total just as much as it would on the $250,000 principal.

You might be wise to refuse to read the entire article I wrote for any number of reasons. But you’re not wise for the reason you presented. Inflation and deflation apply every bit as much to interest as they do to principal.

palani

January 10, 2015 at 11:01 AM

You have to consider the real value of the 2nd amendment. Not as the government or people choose to decipher it but rather as it could be interpreted. The right to bear arms is the right to use a seal, the right to raise a flag and the right to a coat of arms. These are all heraldic arms and you indeed have a right to bear them .. isn’t it is written in the 2nd amendment.

What does this have to do with money? As has been pointed out there is not enough gold in the world to create a monetary system. There is enough gold to form substance for a contract in law. All it takes to create a contract is one dollar and either gold or silver will work. This small amount of metal is capable of moving the transaction from the purview of EQUITY to that of LAW.

What does this have to do with the 2nd amendment? Well, courts have deemed that a seal is sufficient consideration of and by itself. You see .. you don’t even need gold or silver to move a contract from EQUITY to LAW. Should you accompany your offer with a seal that is consideration enough. Now don’t expect any EQUITY court to understand what you are doing but isn’t it their job to understand the law and I doubt if you possess the license to explain it to them. Don’t even try.

And that is the tie in between the 2nd amendment and the monetary system. Your right to a seal is guaranteed by this amendment. So the next time you are stopped by a trooper and he asks if you are armed don’t forget to tell him of that seal you carry with you.

“I suppose it would help our cause if we let him know that we don’t care if he understands or if he does not understand.”

I have no cause and I don’t have a license to explain law to anyone. I also tend to forget facts as soon as I observe them. But I do enjoy discussing law as a topic for both entertainment and education. Is that why you are here?

@ > Is that why you are here?
Mainly, YES, but since you say you have no cause, I am at a loss to know how to cope with or respond to your, no cause. BUT, it does look like you do have a cause, however, as to why, I can’t say. I do like the way you “perform” cause it sure beats practicing. Btw, I have 3 “quas” I truly love. Yeah, I saw it, all about those 4 footed creatures. I could not cut & paste it. Wish I knew why. I luv yer werk.

Eric Christenson

January 10, 2015 at 9:54 PM

Ohhhh I forgot. You say, “You have to consider the real value of the 2nd amendment.”

My question is, does the 2nd amendment have an account number? If it does not, then it is of no account, RIGHT? Hi moon.

palani

January 11, 2015 at 7:05 AM

“does the 2nd amendment have an account number”
Three Names came before Numbers. If it has a name it has an account.

Eric Christenson

January 11, 2015 at 3:53 PM

You win. I do not want you & I to be accused of being the hog & hogee of this blog so you have the last word. Excuse my misspelling of, quads/quadruped. I luv yer werk.

Mr. Speaker, an immense amount of United States money has been used abroad in preparations for WAR and in the acquisition and the manufacture of WAR supplies. Germany is said to be part owner of a large poison-gas factory at Troitsk on Russian soil. China is almost completely Sovietized, and in the Asiatic interior huge stocks of munitions are said to be stored awaiting the day when the WAR LORDS of the United States will ship United States troops to Asia.

Mr. Speaker, the United States should look before it leaps into another war, especially a war in Asia. It should decide whether it is worth while to join hands with Russia and China in a war against Japan. For myself, I say and I have said it often that the United States should remember George Washington’s advice. It should mind its own business and stay home. It should not permit the Jewish international bankers to drive it into another war so that they and their Gentile FRONTS and SYCOPHANTS by way of Louis McHenry Howe, the GRAFTMASTER, may reap rich profits on everything an army needs from toilet kits to airplanes, submarines, tanks, gas masks, poison gas, ammunition, bayonets, guns, and other paraphernalia and instruments of destruction.” Congressional Record, June 15, 1934.

Congressman McFadden: “The Congress of the United States must immediately throw the searchlight of investigation into this dark corner, or we are going to be swamped with political influences that are manufactured in foreign countries and that will lead us to the surrender of our heritage of living, just as has been done on former occasions. Just as we did, for example, when we entered into the Jay Treaty with England, which was ratified on June 24, 1795, whereby we needlessly surrendered our right to the freedom of the seas. We fought the War of 1812 to regain this right, but the same political influences prevented even a discussion of this subject at the treaty which terminated that war. President Wilson vowed to regain the freedom of the seas at the Treaty of Versailles; but did we regain it? Is the Jay Treaty still in force?”….

“I stand here and say to you that I have studied these records, and not only did we adopt this monetary policy WITHOUT DEBATE, not only did we adopt it WITHOUT CONSIDERATION but we adopted it without even KNOWLEDGE of what we were doing! It was a piece of legislative TRICKERY; it was a piece of work in the committee that was silent and secretive. Even MEMBERS of the committee did NOT KNOW what was being done, according to their own declarations. The President and Members of the House did not know they were acting on such a measure. But, as I have said before, the shadow of the hand of England rests over this enactment” Congressional Record, January 8, 1934.

Congressman Young: “Old Hickory was a great soldier. His victory at New Orleans is one of the most remarkable battles in history. The English army outnumbered Jackson’s forces. The American losses were 13. In half an hour the English had lost 2,600 men, including their commander, Sir Edward Pakenham, a brother-in-law of the Duke of Wellington” Congressional Record, January 8, 1934.

Congressman Fiesinger: “You will recall the gentleman spoke about Professor Sprague, who was in the Treasury Department as adviser to the Treasury after he came as adviser for the Bank of England. He was also monetary adviser to the Economic Conference in London.”…..

Congressman Fiesinger: “I was just going to remark that very thing, that the power to “coin and fix the value of money” is solely within the power of the Congress of the United States and it cannot be delegated to anybody else in the world.”

Congressman McFadden: “Will the gentleman yield further?”

Congressman Fiesinger: “I do.”

Congressman McFadden: “What does the gentleman say in regard to the delegation of that power to the Federal Reserve System?”….

Congressman Fiesinger: “I say it is ILLEGAL. I say it is UNCONSTITUTIONAL, as far as it affects the value of basic money. Power to control credits may be in a different class.”

Congressman McFadden: “The gentleman recognizes that that was done, does he not?”

Congressman Fiesinger: “Well, I think I recognize that fact; but it may be that Congress intended to delegate banking and credit control and not the control of the basic money values.”

Congressman McFadden: “The Federal Reserve System has the power to issue Federal Reserve notes, which circulate as money?”

Congressman Fiesinger: “It has. Of course, they are promises to pay. They are credits or I O U’s of the bank.”

Congressman McFadden: “And that power was delegated by Congress in the Federal Reserve Act.”

Congressman Fiesinger: “Yes, sir; with the intent to regulate the volume of credit.”

Congressman McFadden: “And is being pursued by them, which gives the Federal Reserve System CONTROL over the money and credit in the United States.”….

Congressman Mott: “What does the gentleman say about the delegation by Congress to the President to fix the value of money, under the farm bill?”

Congressman Fiesinger: “I think it was ILLEGAL, and the President did not want it. It was forced upon him. He never asked to have the amendment attached to the Farm Bill. It was forced upon him, and he is exercising the power because he was forced to exercise it; a power that he never wanted, and I say it is all illegal and unconstitutional.”….

Congressman McFadden: “If the gentleman has been familiar with the activities of Dr. Sprague over the history of the Federal Reserve System, he well knows that Dr. Sprague has been in ALL of the conferences, practically, between the Bank of England, officers of the Federal Reserve bank in New York and other central banks, which have had for their purpose the dealing with national and international price levels. That was one of the functions that he was exercising as expert adviser of the Bank of England.”

Congressman Fiesinger: ” Now, I understand that Dr. Sprague at the London conference was willing to peg the dollar to the British pound at $3.50, and, if he had done that, the price levels in America would have been in the control of the Bank of England, and it would have been so low it would have wrecked our national economy.”

Congressman Lamneck: “Will the gentleman please insert at this point what Dr. Sprague said about who should control the price level?”

Congressman Fiesinger: “I may say, I did not expect to answer that question, but Dr. Sprague, in a conference he had, stated he believed that the value of gold should be CONTROLLED by the British, because they were more competent, from banking experience, so to do” Congressional Record, January 8, 1934.

Congressman McFadden: “Why should the United States be buying gold and paying $35 and ounce for it? Why Should the United States be making Great Britain a present of $14.33 and ounce on the hundreds of millions of dollars of British gold that is being shipped to the United States through this process by favoring four London gold brokers? Why should the United States set a price of $35 and pay Great Britain an increase of $14.33 on every ounce of gold? This is interesting when you consider that three fourths of all the gold produced in the world is produced in the British Empire. Did we do this because Great Britain demanded it? Is it possible that this $14.33 profit to Great Britain on every ounce of gold shipped into the United States is for settlement of a DEBT that the United States owes to Great Britain? Congressional Record, February 20, 1934.

Congressman McFadden: “I am quoting from the President’s message to Congress on this very measure. I quote: “That the title of all gold be in the Government. The total stock will serve as a permanent and fixed metallic reserve which will change in amount only as far as necessary for the settlement of international balances or as may be required by future agreement among nations of the world for a redistribution of the world stock of monetary gold.”….

Congressman McFadden: “I say again what I have repeatedly said, that there is a DEFINITE PLAN for the redistribution of the gold of THIS country and of the WORLD’S gold. The plan has been known ever since the establishment of the Bank for International Settlements that through that medium, or one similar to it, eventually the redistribution of gold would take place” Congressional Record, January 20, 1934.

Congressman McFadden: “The gentleman, of course, is aware of the fact that the Council of the Federation of Churches of Christ is an offshoot of the Carnegie Foundation which is operating in this country as a British-PROPAGANDA organization, tied up with all of the other subversive organizations which are trying to hold down proper preparedness in the United States. [Applause] Congressional Record, January 30, 1934.

(Brother Branham said the one word missing from the name of this Jewish Communist FALSE church is “Anti-“).

Congressman Weideman: “So the paramount issue of today is this: Shall the Government of the United States be run for the benefit of the INTERNATIONAL BANKERS, or shall the CITIZENS of the United States be given the right to “life, liberty, and the pursuit of happiness”? Shall we replace the Statue of Liberty with the golden statue erected to the god of GREED? Shall we forget that the only time our Savior used force was when he drove the money changers from the temple? Let us reestablish the principle that we all believe in: That all men are entitled to a right to work, to own their own homes, to reap a just reward for their labors, and to enjoy nature’s sunshine as God intended. We owe it to our children that we shall not depart and leave them in a condition of bondage and slavery to organized greed and gold. . .” Congressional Record, March 3, 1934.

Congressman Patman: “….A Federal Reserve bank has a great privilege. It has the right to issue a blanket mortgage on all the property of all the people of this country. It is called a Federal Reserve note. For that privilege section 16 of the Act provides that when the Government prints a Federal Reserve note and guarantees to pay that note and delivers it to a Federal Reserve bank, that Federal Reserve bank shall pay — it seems to be mandatory — the rate of interest that is set by the Federal Reserve Board. THE LAW HAS NEVER BEEN PUT INTO EFFECT. The Federal Reserve Board sets the ZERO rate. Instead of CHARGING an interest rate which the law says they shall charge, they set NO rate at all. Therefore, for the use of this great Government credit —